[aindia]

2020_BCG_After a Roller Coster Ride-Ripe for scaling upto a conservative STOCK Valuation.Some triggers to look forward to:

Check “comments”against each of the listed triggers.
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A.  Venture Capital and Private Equity Firms-Exit Impact :
Passport Capital, Eight Capital and Venus Capital sold during 2013-16,Sansar Capital during 2014-17, Everest during 2018-19 and Oak in 2020.

Comment: Rs.150 cr (legacy) write off 2012-13 was the first of the triggers for the above exits through the period up to now.

B. Perception about Management (cloud of negativity-trust factor / write-offs in the past /delays in addressing TRs)

Comment:
So far management attention has been drawn majorly to post-merger legacy issues- write offs, paring down of debt.

C.SIGNIFICANT IMPAIRMENT: Sizeable Impairment of Balance Sheet, of more than INR.865 cr, in FY 2020, declared out of the blue was un-anticipated by shareholders. 

Comment :
Amount, certainly, is huge. Management, chose to bite the bullet (accumulated over the years), when the Bal. Sheet size (Assets) could accommodate/ absorb. What is understood here, realistically declare the redundant/ non- productive assets (could be mix of legacy assets came through ( around 14%) acquisitions, and / or freshly invested but that have lost the relevance). It could also have resulted from the DD process requirement of LoC provider.

D. STRAIN OF LEGACY DEBT: Multiple Bank loans contracted at high cost( around 14%) prior to reverse merger, left a lasting strain so far.Initially pared (from 2013) some big component of them.

Comment:
O/s legacy loans turned NPAs. The tragedy has been that these loans have nothing to do with generation of top and bottom lines. However, they certainly impacted Stand Alone financials under the line item- Interest Expenses.
Company therefore accepted OTS offers, closed SBI and Canara Bank loans. Already pared significant part of Axis OTS offer. Company is actively pursuing the closure process, negotiating the last contours to pay off and earn the coveted Debt- Free status.

E. BCG is way too ahead of its competition due to its first mover advantage backed by multiple providers of technologies that help in minimising Fraudulent Traffic.

Comment:
Consolidating Tech Combos such as DM,AdTech,AI, ML

F. Industry canvass on a spiralling growth path. Industry drivers are at this time showing a mixed outlook

Comment: BCG took the early warning seriously , began working closely with multiple vendors to focus on creating fraud free traffic.

G. Unaudited June ‘20-results are likely to be healthier

Comment:
BCG well prepped to capture , in their favour, incremental business from DM industry weaklings due to cleaner traffic

H. Significant YoY EPS Growth is to be expected (2021 over 2020). Consistently healthy and sustainable PAT figures QoQ, which are expected to grow as we move into next decade (FY2021-30 and beyond).

Comment:
Let’s look out for clues from June Qtr results EPS Growth is expected to be material in the election year ( FY2021)

I. A fresh beginning on DIVIDEND- made an announcement in the recent past,a paltry one at that.

Comment:
Subtle clue to ease of pressure on REAL CASH generation.
Dividend Yield (on FV of Rs 2 and even on recent lows) should be very healthy over the period: 2021-2025.

J. The management for the first time began to hint at India as a territory to bet on.

Comment:
This incremental business would drive top line and bottom line growths and margins in the coming years.

K. Prospect of the pending settlements on the horizon:

Comment:
While settling the outstanding issues,
BCG could make significant savings (delta from Provisions to Actual Payables- including to 3 of Indian banks, Daum)

L. Entry of one or two MFs/ FIs:

Comment:
As it happens, it would be an added endorsement of the Quality of Management and the Financials.

M. PLEDGED Shares: Very High % of Promoters under pledge
 

Comment:
Shows promoters’ conviction about growing business.
More recently, the % of promoters’ pledged shares is progressively dropping (from 60 to 50 to 33 
and a basis recent debt clearances a further drop is to expected)

N. DAUM –Long -Drawn Battle:Root of negative influences on various performance metrics for a long period.

Comment:
On hind sight, conclusion could be that it was a battle well worth fighting on merit –now a closure on the anvil. Daum, to end this thorn in the flesh, may have conceded a few million dollars.

O. DM/AdTech are least understood:


Comment:
Covid-19 didn’t leave that choice, any more.

P. Free Cash Flows – A sorry story:

Trade Receivables impacted throughout an otherwise growth phase of the Company.
 


Comment:
LoC attempt is precisely to ease the stress (of TR) on business growth in the very near term. We can expect 2020-21 to spring a pleasant surprise,should the LoC happen quickly in the period ahead of US Elections.
 
While the absolute number is as big as Rs.983 cr, the growth trends are suggestive of “less than proportional” increases in TR, compared to growth in Topline. This could also be eased, on the back of Annual Revenues crossing the $500mn.

Not too long ago TTD ( Trade Desk) landed with an LoC of $150 mn, suggesting that there is a clear appetite for it.

Q.We should be looking for the following triggers for growth in free cash flows:
1. Once Axis Bank is out , Debt Free Status, on prospective basis, releases annually INR 15 cr ( interest expense line item).
2. Once Daum is declared as settled, Lycos’s performance should throw up incremental revenues and profits.
3. The growth in margins/ profits coming from the low cost ( for TTD it is around 2.2%) LoC.
4. Incremental Releases from the deployment of LoC monies in strategic partnerships/ investments in start ups.
5. Growth in fraud free traffic, longer screen times aided by Corona and US Elections.
6. Delta ( positive) between Excess provisions made vs actual payments to the likes of Daum and Banks (as per granted OTS amounts by SBI, Canara Bank and Axis Bank)
7. ………and the list goes on and on.

[aindia]

The Future of Media: Closed Ecosystems White Paper
JUL 06, 2020
The media landscape is undergoing a generational shift, as open-web advertising rapidly moves into logged-in environments built on premium content. These “Closed Ecosystems” — which include digital and commerce platforms, social media, streaming video and audio as well as connected TV services and mobile apps — are where consumers consume the vast majority of media, and where brands spend the vast majority of their budgets. The concentration of dollars and attention within Closed Ecosystems has been happening for some time, and now the pace is rapidly accelerating. Soon, Closed Ecosystems will be the only way for brands to truly connect with customers.

Operating in this reality presents brands with new challenges: namely, the challenge of delivering a consistent message across these fragmented environments. Brands need to match the relevancy and personalization that consumers have come to expect in an era where algorithms curate highly individualized media experiences in every content modality, beginning with social but now extending to audio and video. Doing that requires the facility to operate between these Closed Ecosystems with fluency and ease.

[aindia]

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CONSOLIDATED LEVEL READING OF ARs- With a focus on DIGITAL segment figures

A. Company had been claiming there would NOT be any need to write-off any portion of Account Receivables ( for FY 19 it was at ₹898cr and for FY 18 it was at ₹887cr – at GROSS level)

HOWEVER, as a prudent measure, we see it make provisions. Example for FY 18 &19 , provision for bad debts were of ₹12.14cr and ₹8.74 cr ( Ref pg 97 of 2018-19 AR)…..1.4% and 0.97% respectively. NOTHING alarming about them at all.

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At STAND ALONE / SOFTWARE level:

Account Receivables ( for FY 19 it was at 235 cr @ SA)

For FY 18 &19, the SA level provisions for bad debts were ₹11.14 and ₹7.43 cr ( Ref pg 64 of 2018-19 AR)…..4.65 % and 3.16 % respectively. NOTHING alarming about them either

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ROW / DIGITAL

Figs for Rest of the World ( RoW) are as follows:

Account Receivables ( for FY 19 it was at ₹663 cr for RoW and for FY 18 it was at for FY 18 it was at ₹648 cr)

For FY 18 &19, the SA level provisions for bad debts were :

Just ₹1 cr and ₹1.31 cr ( deduced from 2018-19 AR)…..0.15% and 0.19 % respectively. AS GOOD AS – ZERO.

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SUMMARY on ACCOUNTS RECEIVABLES:

INR Provisions made for SOFTWARE/ domestic segment are not alarming, either at ABSOLUTE or % levels. Secondly, SW REVENUE as % of total is south of 20%……hence “MAJORITY of Receivables provisions are made in this segment .
Provisions for DIGITAL segment,( deduced from TOTAL minus SW)are a reflection on company’s CONFIDENCE in recovering ALL of RECEIVABLES( dollar denominated) from its DIGITAL SEGMENT.
Staggered process ( or a process with a lag)” of realising the DOLLAR denominated Receivables helps in their relative tapering down on a going forward basis. AR (Accounts Receivables) in absolute dollar terms-are on down hill?- along with free cash flow growth due to it.
If this trend continues and in association with Dollar denominated “real ( why? Top line in the recent years has been just flat …as seen in the recent company.ppt) and significant” business growth, decisions on dividend could be addressed easily.
Healthy growth in REVENUE DOLLARS from here on associated with stable/ flat CoGS will peg the Receivables to grow marginally….hence don’t be shocked to see a ₹1000 cr or more AR figure ( this note was written before the recent results declaration of Audited results for FY 20).Actual figure AR increase is just marginal from a wholistic view point of view. If this is how it plays out now,the takeaway is that it will drive free cash flows up. ——-mkt recognises the need for re-rating.

Note: The above doesn’t cover deep probe n analysis of SW figures

[aindia]

Key takeaways (Opinion) from concall of 2 July’20-LIST “A”

Overall opinion: No major negatives if we drop Impairment issue.

SKR:Bullish on India
-a 5year play is guaranteed. Referred to RIL+FB association.

Opinion:

First time ever in all these years he sounded very optimistic about prospects in India.

SKR:June Quarter

could yield pleasant surprises—-why ? Positive outcomes from HIGH productivity of WFH and Traffic spike up

Opinion:

Exponential growth,across the globe, in “screen time” (growth in traffic being ratified by publishers across geos, may yield much better YoY growth in June Ending Q1 FY21 financials-particularly good growth in volumes and softened pricing

SKR:

LoC approved but s.t the ongoing Due Diligence. No releases so far.

Opinion:

Perhaps, there is some more waiting in store for LoC,because Top 10 auditor may have just completed CY ’20 figures of subs. FIRST half of CY 20 is gone by, so they like to vet the 6M figures of CY20.

SKR: Daum Settlement
requires 1:1 exchange of agreed amount with signed agreement across the table. Covid-19 remains a blocker so far.

Opinion:

1.Plan B is -a MUST to close on it.
The Dilemma could be , if any advance is released ( not out of LoC) the agreement may hv included advance followed by staggered releases of balance. Pending no disbursement LoC yet ,both BCG and Daum may have agreed to wait till the pandemic is gone.

2.If LoC formal sanction goes through quickly, such agreement will have a different shape like ONE BULLET Payment. This bullet payment figure could add to further savings and with no residual scope for contesting, which otherwise is a risk in staggered payments model.

We may have to wait it out. Need not be concerned about the closure prospects. Also because BCG has already been working on Lycos URL and its properties in parallel.

SKR: On Why stagnant top line OR no growth in the recent past?

Liquidity( sufficient free cash flows) being the biggest constraint,working capital cycle is skewed towards a higher no of (124 in Digital) days for Trade Receivables and a low number of (30 for Digital )days for “Trade Payables”. Hence the need for LoC

Opinion:

There exists always opportunities to grab more of DM business but for inadequacy of working capital .Once LoC funds are available,the revenue could easily bump up YoY by 25 to 30%. Current yearly consolidated revenue could grow to ₹3360 cr+ I.e;$443mn for FY’21.Such a revenue growth would yield better free cash flows that go on to drive up both top and bottom lines. In this DM/Ad Industry $400 cr revenue threshold once crossed, would boost, all round,the financial parameters, more importantly the Free Cash Flows.

SKR on Axis:

SHs not to be concerned at all.
Now we ( as in both BCG & AXIS)have clarity on closure.

Opinion:

My sense is :Since the NCLT order is scheduled for 8th July, we can expect sign off on 7th EoD, if not earlier. This time comfort may have been given by the judge @ NCLT to facilitate a mutually agreeable closure transaction (Judge may have also advised a mid-path solution to work with )within themselves and not risk the admission into Tribunal. Once bitten twice shy, BCG wouldn’t take the battle beyond 7th July.

Note:Takeaways from CC to be continued.
Please list your queries so I provide my opinions .
Urge you to validate each of those opinions

[Author]

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